Bimbo sinks into the red

Teresa Sánchez

Spain's industrial baked goods sector has fallen on hard times. Following sharp losses at Panrico, which forced the company to present a downsizing plan to the government, it's top rival, Bimbo, has also slid into the red and has no other option but to reduce its workforce as well. The Spanish subsidiary of Mexican group Bimbo reported losses totaling 95 million euros in 2012 and 2013 (data for 2014 is not yet available).

And what's worse is that, rather than improve, the situation continues to worsen. Specifically, Bakery Iberian Investment, the holding company through which the business is managed, ended 2013 with post-tax losses of 71.3 million euros, i.e. almost triple the company's losses the previous year (24.3 million euros). Bimbo's extremely delicate financial situation has forced its Mexican parent company to come to its rescue on more than one occasion.

Bakery Iberian Investment's accounts show how debt owned to the group has expanded, from 33 million euros to more than 70 million. And as if that weren't enough, the company has been forced to complete five capital increases in just two years, totaling 75 million euros, to offset sharp losses.

When the Mexican group Bimbo acquired the bread-making business in Spain and Portugal from US multinational Sara Lee in 2011, a purchase that also included well-known brands such as Martínez, Ortiz and Silueta, it had no idea about its troubled situation. The Latin American giant paid 115 million euros for the Spanish leader in sliced bread with the same name; however, the transaction was much more expensive than initially expected.

Bimbo Mexico designed a complex corporate structure to achieve tax savings, but it still hasn't been able to make the business profitable. Bakery Iberian Investment controls the companies that manage the business in Spain, which include Bimbo Sociedad Anónima and Bimbo Martínez Comercial, and also holds shares in other subsidiaries in Argentina, Peru, Venezuela, Honduras and China.

To achieve tax savings, the company that holds shares of Bakery Iberian Investment is not in Spain or Mexico, but in the Netherlands, where the tax rate is much lower. According to Madrid's Mercantile Registry, Bakery Iberian Investment is owned by Bimbo Holanda BV, a holding company whose only objective is to save on taxes.

The industrial baked goods group reported revenues of over 300 million euros from its various companies in 2013. Of the total, 264 million euros were attributable to Bimbo Sociedad Anónima and another 40 million euros to Bimbo Martínez Comercial.

The holding company that groups the two companies also reported assets worth 542 million euros, and net equity of 460 million euros. But the business is wobbling, and management in Mexico has been forced to start restructuring.

The company has approved a downsizing plan that will affect around 60 employees at the Las Mercedes factory in Madrid, which has a staff of close to 260. The unions consider the downsizing plan to be "the beginning of a series of lay-offs which will continue to occur" before a large factory is commissioned in Azuqueca de Henares, in Guadalajara province, with which the company aims to reduce costs.

According to Comisiones Obreras (CCOO), the company "aims to register the new factory under a different name to avoid adhering to the agreement signed with the unions, which has very favorable conditions"; as a result, the unions staunchly oppose the layoffs.

At any rate, once that plan is submitted to Spain's Directorate-General of Employment, negotiations will begin, and eventually conclude on February 24th. Beyond plans to cut jobs and reduce salary costs, the underlying problem is much more serious. The baked goods sector can't seem to find a way to successfully weather the financial crisis.

The strategy seems to include manufacturing increasingly smaller products, with a longer expiration date, at a lower price, but even that approach isn't bearing fruit at the moment, especially considering the very high logistics costs involved in delivering sliced bread and baked goods to stores every day.